Tax Break Possible for Chinese Drywall Victims

Chinese drywall victims could be eligible for a big tax deduction, if they can prove to the Internal Revenue Service (IRS) that they suffered “sudden, unusual and unexpected” damage because of the defective wallboard.

So far, the Consumer Products Safety Commission (CPSC) has received 2,276 reports from residents in 32 states, the District of Columbia, and Puerto Rico concerning Chinese drywall. The drywall problems have forced many people out of their homes, and some families are dealing with the heavy financial burden of paying both rent and mortgage payments. Those unable to afford additional rent have no choice but to stay in their potentially hazardous homes.

Tests recently released last month by the CPSC of 51 homes confirmed that the presence of hydrogen sulfide is the essential component that causes copper and silver sulfide corrosion found in Chinese drywall homes. The CPSC is still trying to determine if the Chinese drywall poses any long-term health risks or other hazards.

According to Scripps News Service, the IRS issued a statement on a possible tax deduction following the release of the CPSC’s tests, and requests from the agency and various lawmakers that it determine whether Chinese drywall victims could take claim a casualty-loss deduction.

Not all homes with Chinese drywall would qualify for the deduction, Scripps News Service said. To be eligible, a homeowner must be able to provide “expert” documentation of sudden, unusual and unexpected damage from Chinese drywall. Homeowners who have a reasonable expectation of reimbursement through their insurance or some other source would not be eligible for a casualty-loss deduction.

It is estimated that as many as 40,000 homes nationwide could contain Chinese-made wallboard. The Chinese drywall debacle has spawned hundreds of lawsuits against the companies that manufactured the tainted wallboard. Over the summer, pending federal Chinese drywall lawsuits were consolidated in a multidistrict litigation in U.S. District Court, Eastern District of Louisiana.

Yesterday, a massive lawsuit was filed against Knauf Plasterboard Tianjin Co. Ltd. in that litigation that involves nearly 2,100 plaintiffs in Louisiana, Alabama and Florida. The omnibus class action lawsuit was the result of an agreement between U.S. District Court Judge Eldon E. Fallon, who is overseeing the Chinese drywall multidistrict litigation, and Knauf. Knauf had agreed to waive its rights under the rules of international litigation in The Hague for any Chinese drywall claimants who signed onto the omnibus lawsuit by December 2.

In addition to Knauf, Nola.com is reporting that the omnibus lawsuit names “tons” of homebuilders, remodelers, building suppliers and distributors who plaintiffs allege should have known the drywall being put into homes was defective.

Bellwether trials are expected to begin in the Chinese drywall litigation in January. The first will involve a set of cases from Virginia, and another Chinese firm, Taishan Gyspum, which is actually controlled by the Chinese government. As we reported earlier this year, Judge Fallon has already issued a default judgment against Taishan for failing to respond to lawsuits.

According to Nola.com, the first case against Knauf is expected to go to trial in March 2010.